Hedge Funds No Longer Masters Of Universe

NYT: Several big funds have faltered in recent weeks, some of them spectacularly so. While many funds are still flying high, the average hedge fund has lost more than 4 per cent this year, according to Hedge Fund Research, putting the industry on course for its worst year on record.

The dimming fortunes of the industry have implications far beyond the rarefied world of hedge funds. Over the last decade, the size of this industry grew fivefold, as public pension funds, corporate pension funds and university endowments poured billions of dollars into these vehicles, in hopes of market-beating returns.

A prolonged downturn might prompt some investors to rethink these investments or demand lower fees from managers, who typically collect annual management fees of 2 per cent and then take a 20 per cent cut of any profits. Trouble at hedge funds also might draw government scrutiny, given the amount of pension money sitting within these unregulated firms.